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The U.S. Department of Commerce reported on Wednesday that the widening trade deficit, combined with weak housing, manufacturing and corporate investment data and moderate consumer spending, hinted at a slowdown in economic growth in the second quarter. The job market also seems to be losing momentum, with private employers adding jobs far below expectations in June.
The news about the huge services sector is also pessimistic.
As the massive stimulus effect of tax cuts and government spending increases receded last year, slowing economic activity may prompt the Federal Reserve to cut interest rates this month. The Federal Reserve hinted last month that monetary policy could be relaxed as early as July 30-31, citing growing risks to the economy from the Sino-US trade war and low inflation.
The trade deficit soared 8.4% to $55.5 billion in May. The trade deficit was revised up to $51.2 billion in April, with a previous value of $50.8 billion. Analysts surveyed by Reuters had expected the trade deficit to expand to $54 billion in May.
One of the concerns of President Trump's "US Priority" policy agenda is that the commodity trade deficit with China increased by 12.2% to $30.2 billion, of which imports increased by 12.8%. After the breakdown of the last round of negotiations, Trump raised tariffs on Chinese imports to the United States, prompting Beijing to take retaliatory action.
Trump and Chinese President Xi Jinping reached a trade truce last week, and the two countries resumed economic and trade negotiations. White House trade adviser Navarro said Tuesday that negotiations are moving in the right direction, but it will take time to reach an agreement.
Trade tensions between the United States and China have led to large fluctuations in the trade deficit, and both exporters and importers are trying to take the initiative in the tariff war between the two largest economies in the world.
After the data were released, the dollar weakened against a basket of currencies, the price of U.S. government bonds rose, Wall Street stocks rose, and trading was light ahead of Thursday's U.S. Independence Holiday.
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